Exploiting Cross Section Variation for Unit Root Inference in Dynamic Data

Publication Date
Financial Markets Group Discussion Papers DP 171
Publication Authors

This paper considers unit root regressions in data having simultaneously extensive cross-section and time-series variation. The standard least squares estimators in such data structures turn out to have an asymptotic distribution that is neither Op(T−1) Dickey-Fuller, nor Op(N12) normal and asymptotically unbiased. Instead, the estimator turns out to be consistent and asymptotically normal, but has a non-vanishing bias in its asymptotic distribution.